External sector holds steady in May as remittances continue to do heavy lifting

Sri Lanka’s external sector continued to show signs of stabilisation in May 2025, with a current account surplus marking five straight months of gains. 

The trend was driven largely by worker remittances and steady tourism earnings, even as the trade deficit widened year-on-year.

Data released by the Central Bank on Monday showed remittance inflows climbing 17.9 percent in May from a year earlier, bringing total earnings from overseas workers to US$ 3.1 billion for the first five months of the year.  The consistent inflow provided a critical buffer to the expanding trade gap, underlining the economy’s continued reliance on external income sources to manage balance of payments pressures.

Despite a wider merchandise trade deficit in May compared to a year ago, a result of imports outpacing exports, the gap narrowed from April levels. Vehicle imports stood out, with US$ 118 million worth of personal and commercial units entering the country in May alone, taking the January–May total to US$ 312 million.

The terms of trade took a hit during the month, with import prices rising faster than export prices, adding pressure on Sri Lanka’s fragile external balances. 

The United States, India, and the United Kingdom remained the top export destinations, while imports were dominated by China, India, and the United Arab Emirates, a pattern unchanged from earlier months.

Tourism earnings came in at US$ 164 million for May, taking cumulative receipts for the year to US$ 1.5 billion. Services sector inflows rose 6.8 percent in the five months to May, though the month’s performance was marginally below that of May 2024.

Foreign investment flows remained tepid but positive. Net inflows were recorded in both government securities and equities, reversing the net outflows seen in April. Gross official reserves remained steady at US$ 6.3 billion by end-May, inclusive of the swap facility from the People’s Bank of China. The Sri Lankan rupee, meanwhile, depreciated 2.5 percent against the US dollar by end-June, reflecting continued currency adjustments amid shifting trade and capital flows.